TaxTMI 
TaxTMI 
2008 (8) TMI 385
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.... of penalty proceedings submitted as under:- (i) Thus disallowance of interest expenditure Rs. 54,180 on bank loan was only a technical addition and assessee had not preferred an appeal because of the smallness of the amount. (ii) That the addition of cash credit made of Rs. 10,500 was voluntarily offered by the assessee, since assessee was not in a position to compel cooperation from the concerned loan creditor and the transactions had been squared up, long back. (iii) As regards set off of losses, amendment to section 158BB(1)(b) for non-grant at set off at losses disclosed in regular returns filed came with retrospective effect by Finance Act, 2002, and the assessee could not be penalized since the law that stood as on the date of filing of the block period return was a different one. 2.2 The learned Assessing Officer did not accept any of the contentions of the assessee and imposed the penalty on the difference in the amounts as returned by the assessee in return Form 2D and that finally assessed in the block assessment. Assessing Officer's reasons for not accepting the contentions raised by the assessee were as follows:- (i) Clause two to sub-section (1) of sect....
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....earance for the assessee. 2.6 We have perused the assessment order and the penalty order as well as the grounds and submissions made before the CIT(A) and by learned Departmental Representative before us. The regular assessment procedures and the block assessment procedures have been treated differently by the Legislature and this is clear from the caption of Chapter-XIV-B, which is "Special procedure for assessment of search cases". Section 158BFA(2) falls under Chapter XIV-B. In a search assessment under Chapter XIV-B, an assessee is given a chance to file a return of income for the block period. Such return, vide clause (a) to section 158BC has to set forth assessee's total income including undisclosed income for the block period. Against this, penalty under section 158BFA clause (2) is leviable only on that portion of the undisclosed income determined by the Assessing Officer, which is in excess of the amount of undisclosed income shown by the assessee in the return filed. It is, therefore, obvious that the assessee after a search is having sufficient opportunity to come clean and disclose any income that he thinks is undisclosed, in the returns filed by him in pursuance of ....
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....here, there are only two items of additions and there is nothing on the record to show that these involved any voluminous record. Hence, the Koatex Infrastructure Ltd.'s case has no applicability in the circumstances of this case. Thus, we see no reason as to why the Assessing Officer should have used his discretion as to not levy penalty. On the other hand the facts of the given case, the levy seems to be justified. Hence, we find no reason to interfere with the order of CIT(A). 3. In the result, the appeal of the assessee is dismissed. Per K.C. Singhal, Judicial Member.-The order proposed by my learned Brother has been perused carefully by me. Even after having conference with him, it is not possible for me to agree with the conclusion drawn by him for the reasons given hereafter. 2. The question for our consideration is whether penalty under section 158BFA(2) of the Income-tax Act, 1961 ('the Act') can be levied considering the facts of the case. 3. At the outset it may be mentioned that there is no dispute to the legal position that provisions of section 158BFA(2) are materially different from the provisions of section 271 (1)(c) of the Act. Under section 271 (1)(c)....
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....ii) addition of Rs. 10,500 on account of unexplained cash credit under section 68 pertaining to assessment year 1994-95. The relevant facts giving rise to this appeal are these: (i) the assessee-firm is one of the group concerns of M/s. Sea King Infrastructure Ltd. (SKIL) which is a promoter of Gujarat Pipavav Port Ltd. (ii) A search and seizure action under section 132 of the Act was carried out at the premises of Sea King Infrastructure Ltd. and other group concerns on 23-2-1999. (iii) No search action was carried out at the business premises of the assessee. (iv) However, some reference of the assessee-firm was found in the declaration made under section 132(4) by the group. Hence, proceedings under section 158BD were initiated by issuing notice dated 31-5-2001. (v) The return for the block period was filed by the assessee on 13-7-2001 disclosing undisclosed income at Rs. 1,63,628 relating to assessment years 1994-95 to 1997-98 being the profits & losses as per regular books of account. Such profits and losses were treated as undisclosed income in the return since the assessee had not filed its regular returns for these years. (vi) In the course of assessment p....
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....he set off of the loss which resulted in reduction of penalty of Rs. 38,808. However, the penalty with reference to the above two additions was sustained. 7. The question for our consideration is whether on the facts and circumstances of the case, penalty under section 158BFA(2) was rightly imposed. In my opinion, the penalty should not have been levied considering the facts and circumstances of the case as well as the legal position for the reasons given hereafter: (i) the initiation of proceedings under section 158BD of the Act itself appears to be doubtful. Admittedly, no search was carried out at the premises of the assessee. The provisions of section 158BD can be invoked only where any material or evidence is found in the course of any search which indicate that undisclosed income belonging to any person other than the person with respect to whom the search was made under section 132 or where the books of account or other documents or any assets were requisitioned under section 132A. The perusal of the assessment order does not show anywhere that any material or evidence was found in the course of search carried out at the premises of M/s. Sea King Infrastructure Ltd. or....
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.... not include the disallowance of expenses by the Assessing Officer since such disallowance was included in the definition of undisclosed income by Finance Act, 2002 with retrospective effect. Even otherwise, such disallowance can be included in the definition of undisclosed income only where the claim of the assessee was found to be false. To appreciate the legal position, it would be appropriate to refer to the relevant definition under section 158BB(b) which reads as under: "158B. In this Chapter, unless the context otherwise requires,- (a) ** (b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false." The words 'underlined by us' were included by Finance Act, 2002 which shows that at the time when ....
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....n spite of service of notice. Therefore, I proceed to decide the issue on the basis of material available and also hearing the learned Departmental Representative. 4. The only ground taken by the assessee before the CIT(A) was against upholding penalty of Rs. 38,808 levied under section 158BFA(2) of the Income-tax Act, 1961. 5. The assessee was subjected to search assessment, whereupon additions were made, which included disallowance of interest expenditure Rs. 54,180; addition for unexplained cash credit Rs. 10,500; and another disallowance of claim of set off of business loss Rs. 18,698; totalling Rs. 83,378. The assessee contended before the Assessing Officer that the disallowance of interest expenditure on bank loan was only a technical addition. The assessee did not appeal against the same because of the smallness of the amount. Coming to the next addition of cash credit, it was stated that this was voluntarily offered by the assessee. Regarding set off of loss, it was stated that amendment to section 158BB(1)(b) for non-grant of set off of losses disclosed in regular returns filed came with retrospective effect by Finance Act, 2002 and the assessee could not be penalize....
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....ive explanation regarding the cash credit or the interest paid on account of diversion of loan, the Assessing Officer rightly levied the penalty and the CIT(A) confirmed it. Since there was no explanation, reliance placed by the assessee in the case of Koatex Infrastructure Ltd., the learned A.M. held, is not applicable. The learned A.M. distinguished the decision relied by the assessee observing as under:- "In the case of Dy CIT v. Koatex Infrastructure Ltd. [2006] 100 ITD 510 (Mum.) this Tribunal had ruled that it was humanly not possible in the circumstances of that case for the assessee to correctly compute his income due to the voluminous records seized and, therefore, deleted the penalty levied under section 158BFA(2). About 54 files containing 10,000 sheets involving 31 concerns were seized in that case. On the other hand, here, there are only two items of additions and there is nothing on the record to show that these involved any voluminous record. Hence, the Koatex Infrastructure Ltd. has no applicability in the circumstances of this case." 8. However, the learned Judicial Member could not agree with the conclusion arrived at by the learned AM. While taking a contra....
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....ion as it stands now and stood then is materially different and has no scope for levying the penalty. 9. Hearing the learned DR and going through the material and the order of the learned Members constituting the Bench, I am of the opinion that the view taken by the learned JM is correct. First of all, a discretion is given to the Assessing Officer to levy or not to levy the penalty as the wording in section 158BFA(2) reads "The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay....". On this point there is no dispute between the Members. The reasoning of the learned AM that mere failure on the part of the assessee or the explanation given by the assessee was not satisfactory to the Officer and that itself is sufficient to levy the penalty, particularly on the basis of facts in the instant case; I am afraid is difficult to accept. As rightly noted by the learned JM, at the time when the assessee filed the return on 31-5-2001, the section as it stood then was materially different from, as it exists now. Section 158B(b), which defines "undisclosed income", was subjected to change by insertion of t....